Bookies back Hughes as he joins Lib Dem race

Simon Hughes soared into the lead in the Liberal Democrat leadership race yesterday after re-affirming policies to hit the rich with higher taxes.

He launched his campaign by saying the party had to stick with a policy which at the last election would have slapped a 50 per cent tax rate on earnings over £100,000.

"I hold to that. We must have a progressive and fair tax system," he said.

Mr Hughes also took a swipe at Sir Menzies Campbell, his chief rival, by indicating that Scottish MPs were too powerful at Westminster. He wants to cut their influence following the creation of the Edinburgh parliament.

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On a day of rapidly changing fortunes, Mr Hughes, the Lib Dem party president, leapfrogged Sir Menzies to become the bookies' favourite in the contest to succeed Charles Kennedy, the ousted leader.

Chris Huhne, a little-known party Treasury spokesman, who launches his campaign today, will also outline plans for hard-hitting "green taxes" to outflank the environmental "rhetoric" of David Cameron, the Tory leader.

But the hopes of Mark Oaten, the Lib Dems' high-profile home affairs spokesman, appeared to be fading after he unveiled a list of backers which included several MPs known to be supporting other candidates.

Among them was John Hemming, the maverick MP for Birmingham Yardley, who intends to stand himself and who freely admitted that he signed Mr Oaten's papers "not because I support his campaign but because I support his right to stand".

In a clear effort to squeeze Mr Oaten, both Mr Hughes - endorsed by Paul Holmes, the party's parliamentary chairman - and Mr Huhne boasted that their backers had not endorsed other candidates.

One senior Lib Dem MP, who will come out for Mr Hughes on Monday, reacted last night by dismissing Mr Oaten's campaign as "a joke" and predicted that even though the campaign had just begun, Mr Hughes would "win easily" among the 73,000 grassroots members who make the final decision.

All four declared candidates will address a policy conference in London tomorrow. Sir Menzies, 64, the acting leader and elder statesman, entered the race last Saturday within minutes of Mr Kennedy's resignation over a drink problem.

But at his first major test at Prime Minister's Questions on Wednesday he faltered badly.

Late on Wednesday evening, Sir Menzies was repeatedly quizzed as to whether he had had a part to play in the forced departure of Mr Kennedy as Lib Dem MPs staged a five-hour inquest over the affair.

Sources present told The Daily Telegraph that although Sir Menzies, who was deputy leader, mounted a "staunch defence", he was repeatedly asked if he had done enough to defend Mr Kennedy.

Sir Menzies's troubles will dismay the party's so-called Orange Book modernisers who are desperate to bury the party's high-tax reputation and who have swung behind him as the only candidate who can stop the popular but Left-leaning Mr Hughes.